Savers with the Halifax were urged not to make panicked withdrawals of cash yesterday after shares in HBOS, the parent company of the high street bank, dropped by almost 20 per cent at one stage.

The Bank of England issued an unprecedented denial that HBOS was in trouble after speculation that the company was facing liquidity problems. The Financial Services Authority, the chief City watchdog, is investigating potential market abuse after concerns that the speculation was generated by “short-sellers”, who make money by betting on shares that fall in value.

Julia Harris, of Moneyfacts.co.uk, the financial website, said that savers with the Halifax would be particularly ill-advised to withdraw money from fixed-term bonds because most of the interest would be lost. “People must also not make panic withdrawals from their Isas, as they will lose their tax-free allowance for the year,” she said. “Banks and building societies are still the safest place to store your money — nobody should be tempted to put their money under the mattress.”

Kevin Mountford, head of savings at Moneysupermarket.com, the price comparison website, said: “Unfortunately in the current climate of turmoil these false rumours can whip people into a frenzy. But there is absolutely no need for customers of Halifax or Bank of Scotland to panic. HBOS has a strong business model with a broad product set that includes business and corporate banking. Unlike Northern Rock, it is not purely reliant on the ‘domestic savings in, mortgage loans out’ model.”

HBOS is Britain’s fourth-largest banking group and also includes Birmingham Midshires and Intelligent Finance. If a bank were to go bust, the Financial Services Compensation Scheme ensures that the first £35,000 held on deposit is guaranteed.

Although experts say that a bank of HBOS’s scale is unlikely to go bankrupt, they advise savers with deposits above the threshold to spread their money across different providers to ensure maximum protection.

Mr Mountford said: “The guarantee applies only to £35,000 in each banking group and not the individual brands, so savers worried about events may wish to spread their money elsewhere for peace of mind.”

He added: “It is also worth noting that if consumers have their savings with the same bank or building society as their mortgage, and the provider goes bust, they will not be compensated in cash for the savings — rather, this amount will be shaved off their mortgage balance.”

HBOS is also Britain’s largest mortgage lender — but, again, experts say that there is no reason for borrowers to panic. David Hollingworth, of London and Country, the mortgage broker, said: “There’s no evidence that there’s any truth in these rumours and people certainly shouldn’t start comparing HBOS to Northern Rock.

“Northern Rock was heavily exposed to the wholesale markets for funding, but HBOS is a very different animal.”

Last year, thousands of people queued for hours outside Northern Rock branches to withdraw their savings after the bank was forced to go to the Bank of England for a loan. But now the bank has been nationalised it has become one of the safest places to put money because all deposits are guaranteed by the Treasury.

Halifax, founded in 1853 as the Halifax Permanent Benefit Building and Investment Society, has more than 1,100 branches nationwide.

Justin Urquhart Stewart, of Seven Investment Management, said that private investors should not be panicked into selling their shares, despite today’s fall. “This is a frenetic market in which unscrupulous individuals are spreading rumours in order to drive down share prices for their own benefit. Private investors should simply ignore the rumours and hold tight or they might miss out when the shares bounce back,” he said.

The five rumours

Rumour
HBOS is seeking emergency funding from the Bank of England
Reply
Denied by HBOS. The Bank of England, which usually declines to comment on individual banks, also made it clear this rumour was false

Rumour
The Bank of England has cancelled staff Bank Holiday leave to deal with an impending financial crisis
Reply
Denied. Bank of England staff will be caught in the Bank Holiday travel chaos like everyone else

Rumour
Mervyn King, the Governor of the Bank of England, has cancelled his trip to Asia so that he can deal with financial crisis
Reply
There was no trip to Asia. He did defer a visit to the Midlands

Rumour
Lloyds TSB faces liquidity crisis
Reply
Investors told “we do not have a problem”

Rumour
HBOS cuts off credit to small businesses
Reply
Denied. Small businesses subject to same credit checks as usual

Times Recommends

• Minister in talks with Saudis to protect creditors
• Premier Inn hits back in £29-a-room row
• Bankers hit back at 'populist' bonus supertax